On Jan. 31, 2020, the United Kingdom officially left the European Union, a coalition of 27 countries that acts as one economic body in the global economy. Known simply as Brexit, the departure of the world’s fifth-largest economy took years of negotiations. But less than two months later, the U.K. was on total lockdown to keep the novel coronavirus from spreading. Shops, pubs and restaurants were closed, and public gatherings were banned. To date, Prime Minister Boris Johnson is the only world leader to be hospitalized with the deadly disease. But in a public address on April 5, Queen Elizabeth said, “Together, we are tackling this disease and I want to reassure you that if we remain united and resolute, then we will overcome it.”
Which sectors in your region are hardest hit by the pandemic?
The COVID-19 pandemic has caused a sudden, rapid decline in economic activity in the U.K. and it’s expected to impact many sectors. Those hit first, even before the U.K. government issued warnings about physical distancing and closures, were travel, transportation, leisure and hospitality. Following warnings to restrict social interaction, the impact quickly spread to consumer services and non-food retail, and is now intensifying in other sectors such as wholesale, manufacturing and construction due to supply chain disruptions, growing rate of staff absences, declining demand and the deferrals or cancellations of corporate strategic investment projects. All of this is now starting to weigh on the U.K. real estate market—both residential and commercial.
What are some of the biggest challenges facing Canadian companies doing business in your region?
It’s clear that companies working in the U.K. are currently preoccupied with addressing the immediate challenges that COVID-19 represents to their workforce, customers, technology, and business partners and supply chains. It goes without saying that Canadian companies should be reaching out to their existing U.K.-based customers and partners to proactively manage any disruptions. That being said, there are already opportunities to be had. Some companies are streamlining their product ranges to focus on goods that are in high demand and are increasing production resulting in a need for additional supply. The government has suspended import duties and value-added tax (VAT) on personal protective equipment (PPE), relevant medical devices or equipment brought into the U.K. from non-EU countries. Many communities have suspended recycling, which may result in a shortage of cardboard and packaging materials and an increased need for virgin fibre cardboard. In the medium-term, once companies turn their attention to returning their businesses to scale, some may take the opportunity to introduce more efficiencies—for example, automation and artificial intelligence—in their operations as they shift to a new normal.
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What is the general feeling in your business community?
After years of negotiations and continuous news about Brexit, most companies were looking forward to focusing on new issues, but COVID-19 is clearly not what anyone had in mind. The pandemic brings a whole new level of uncertainty for most U.K. businesses. Their chief concern is the impact the significant fall in both domestic and overseas revenue is having on their cash flow. A March survey by the British Chambers of Commerce revealed that the majority of firms (62%) have only enough cash in reserve to stay afloat for three months or less. Almost half (44%) of the respondents expected to furlough at least 50% of their workforce by mid-April. The government has responded dramatically to safeguard the economy with significant fiscal and monetary policy support, however, this will take some time to take hold. Liquidity in the financial sector will be critical to bridge the gap created by the immediate drop in corporate revenues. Many firms, therefore, have decided to fully draw on existing credit facilities.
How is EDC helping in market?
We remain in regular contact with our existing U.K.-based customers and are working with them to support their Canadian supply chain as a result of any production stoppages they’re undertaking. We’re also supporting the Canadian operations of our European customers to ensure Canada remains a market they’ll continue to stay invested in. Of course, we keep supporting our Canadian customers who remain active and are pursuing new opportunities during these tumultuous times.